UK Governance Watch

SIG plc is holding a general meeting on 7 November in order to seek shareholder approval of a new remuneration policy and long-term incentive plan (LTIP). In the FTSE250 industrial group’s annual report it was reported that the remuneration committee was conducting a review of executive pay and consulting with shareholders and as this dialogue was ongoing at the time of the AGM held in May it was considered inappropriate to put forward a new pay policy at the meeting.

Under the proposed policy the maximum annual bonus opportunity will be increased from 100% of salary to 150%. The existing annual cash opportunity will remain at 66.7% of salary with the remainder of the bonus to be deferred into shares for three-years, meaning the additional 50% of salary opportunity will be delivered in shares. The deferred shares will also be subject to an additional two-year holding period post vesting. The performance measures and weightings under the bonus will remain unchanged. The share ownership requirements for executive directors under the policy will also be increased from 200% of salary to 300%.

The board are proposing to introduce a new LTIP at the meeting which will provide for annual grants of shares of 200% of salary. Awards will vest subject to TSR performance against the FTSE 250 (excl. Investment Trusts) and the achievement of average ROCE of 10% p.a. over three-years, followed by a two-year holding period. The initial award can be increased by an absolute TSR multiplier of up to 1.5 times such that the maximum overall award is 300% of salary. In order to qualify for the multiplier, the company must achieve upper quartile TSR performance and average ROCE of 12.5% p.a. over the performance period. The previous LTIP provided for annual grants of 150% of salary (200% in exceptional circumstances) subject to EPS and ROCE performance.

The board state that SIG has been through a turbulent period over the last few years which has seen the make-up of its board change significantly and a new management team setting out a turnaround strategy. The remuneration committee consider it essential to lock in and incentivise the CEO and CFO over the next period to enable them to implement the strategic plan and generate sustainable long-term returns for shareholders. Shareholders will need to be satisfied with the committee’s explanation for the proposed changes and will note that the total incentive opportunity for executives will be set at a maximum of 450% of salary, significantly higher than the previous 300% maximum opportunity.